Funding The Future
How to leave an inheritance worth more than money.
“The future belongs to those who believe in the beauty of their dreams.” Eleanor Roosevelt
“Train up a child in the way he should go, And when he is old he will not depart from it.” (Proverbs 22:6 NKJV)
Establish Your Dreams
Our dream for our children is to leave them an inheritance that will last for many generations. We can always give them more money; we might not get a second chance to help them establish the right values.
I have come to recognize that our wealth is a wonderful tool to teach our children the important values in life. These values are the greatest inheritance we can give them. So often I have seen money gone within a generation. On the other hand, our values can have no time limit — they can last for many generations.
Simply giving children some money teaches them little except how to ask for more. However, when parents give money and buy presents to help their children establish their values, they are leaving a gift for future generations.
“Lego sets will come and go but values like integrity, respect, compassion, and teamwork will last for a lifetime.”
Of course there are times to just give them a gift. That is the prerogative of being a parent. However, there are times when either giving children money or buying them a gift should be done with a purpose: either to help them establish their values or help them achieve financial independence. Not all the time, but some of the time. Lego sets will come and go but values like integrity, respect, compassion, and teamwork will last for a lifetime.
To pass on our values to future generations requires a decision, a commitment, and a plan. When I look back on my life as a parent, this approach has played an extremely important part in our children’s development. The process wasn’t without its bumps. At times my patience was taxed. There were times when I thought “Why bother?” There were times when my children questioned my persistence. Their attitude was “Dad, just give us the money, save everyone, including you, the hassle, and life will be so much easier.”
Create Your Plans
“A goal without a plan will remain but a dream.”
Once you have established your dreams and defined your goals, it is time to create your plans. Remember a goal without a plan will remain but a dream.
In today’s world, we sometimes make life far too complicated. According to Jim Rohn, a well-known speaker on personal development, “You don’t have to do exceptional things in life to achieve happiness and success; you just have to do ordinary things extraordinarily well.”
The following are some “ordinary” plans to help your children achieve an “extraordinary” life.
Registered Educational Savings Plan
In today’s world a post-secondary education can cost somewhere between $10,000 and $15,000 a year. In the case of graduate programs — for example medicine or law — the cost can double. Without some help from their family, children will graduate with student debts that will take many, many years to pay off.
The Registered Education Savings Plan (RESP) is a tax shelter designed to benefit post-secondary students. In 1996, the Government provided an additional incentive when it introduced the Canada Educational Savings Grant. The grant is designed to encourage contributions to the RESP. Today, the Government provides an annual $500 grant for the first $2,500 contributed. If proper planning takes place, each student will be eligible to receive up to $7,200 in the form of grants.
Let me share a good story with you. My parents had nine grandchildren — all boys! On the birthday of each grandson, my father would meticulously write a cheque payable to the parents for $2,500. The money was to be deposited into the family’s RESP. At the same time the grandson received a present, which in their later years was simply cash.
On one birthday, my mother put both the cheque and the cash in our son Ted’s birthday card. When he opened the card, he let me know I could keep the cash; he would keep the cheque!
The Value Taught: Ted’s dreams at that age were focused on the short-term — a new Sony Walkman, trendy clothes, exciting computer games etc. Of course he was kidding, but there is a valuable lesson to learn from this story. While children sometimes just want to enjoy the moment, parents can help them focus on long-term goals. Ted could see the cheque providing wonderful presents but his parents had their eyes on the future.
Ted recently shared with me how he and his brothers have come to appreciate the money set aside for them for their post-secondary education. They now realize the importance of establishing a dream and committing to its fulfillment.
My parents established their dream — they wanted their grandchildren to achieve a fulfilling life; they defined their goal — to provide financial support so their grandchildren could afford a post-secondary education; and lastly, they created their plan — to help fund the family’s RESP.
I would make one modification to my parents’ plan. At some point, perhaps when the grandchildren reach their tenth birthday, I recommend you present the cheque to them, of course with the understanding that the money will be invested in their RESP. It is important to explain to them why it is so important to get a good education in today’s world. When you do this every year, you are reinforcing a very important value — the importance of planning for their future needs.
And of course let them know, they can keep the cash portion of the gift!
Why not take your child out for lunch on their next birthday? Over lunch you can share with them this year’s birthday present — a bank account you will open for them with an initial deposit of 20 dollars. Next year you will have lunch again and visit the bank afterwards. Let them know that, whatever they have saved over the previous year, you will give them a 25 percent bonus. Tell them you want to make this an annual tradition until they graduate from high school.
“Dreams cost nothing. Implementation gets expensive.”
The Value Taught: Parents can help their children learn how to manage their finances, which is an important first step in learning the basics of wealth management. Your children will be taking the first steps toward living in the city called Responsibility, not the city called Entitlement.
This simple exercise will not only help your children learn how to manage their finances; it will also help them learn one of my core values in life — becoming responsible for themselves. In their journey they will also learn valuable lessons in budgeting, saving, and understanding “instant” versus “delayed” gratification.
“Dreams cost nothing. Implementation gets expensive.” Children must learn this important concept early in life.
Tax-Free Savings Account
In 2009, the Canadian government introduced a program called the Tax-Free Savings Account (TFSA). Canadians 18 years and older can contribute $5,000 annually to their plan. All interest earned in the plan is tax free. The money can be withdrawn tax free at any time and can be re-contributed at any time in the future. The TFSA is an investment account with checking privileges.
The TFSA, a wonderful gift from the Canadian government, can become an instrument to teach young adults the basics of wealth management. It is simple to understand, it is simple to manage, and it is cashable at any time.
Let me share with you a good story. When my father passed away in 2007, my mother wanted to begin to transfer some of her wealth to her grandchildren. In consultation with her children, my mother decided to give each grandchild some money each Christmas. It was meant to be a special gift. For those 18 years and older, the money was to be invested in a TFSA. For the younger ones, it was invested in trust.
The Value Taught: My mother’s grandchildren were taught my first core value in life — integrity. At the time of the gift, we explained to the older grandchildren that the money would remain in the plan until my mother was no longer with us. All the grandchildren have bought into our plan. They were all aware that while the money is legally theirs and they could take it out at any time; so far they have chosen not to do so.
They were also taught the importance of planning, discipline, and patience when it comes to managing money. Someday my mother’s gift will be used to buy a house, start a business, or send their children to camp. The grandchildren will always remember who gave it to them; hopefully, they will also remember why she gave it to them.
The generational transfer of wealth is best taught with a garden hose rather than a fire hose. Go slowly. Take your time. You will make some mistakes — make sure you learn from them.